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Ethanol Subsidies May Continue Through 2011

Congressional negotiators have agreed to extend the 45-cent-per-gallon subsidy for ethanol for one year, according to a Des Moines Register report. The tariff on imports of the biofuels also will continue through 2011, says Sen. Chuck Grassley, (R-Iowa).

The deal was struck as part of tax legislation worked out with the White House, according to Grassley. The ethanol subsidy and tariff were set to expire at year’s end.

The bill also would resurrect and extend for another year the $1-a-gallon subsidy for biodiesel that expired at the end of 2009. Biodiesel production slowed significantly this year, and many plants shut down.

According to an announcement from the Renewable Fuels Association, “American farmers and ethanol producers welcomed the news that a compromise reached on expiring Bush-era tax cuts will also include an extension of the tax credit for ethanol use, known as VEETC.”

“Ethanol producers greatly appreciate the determination of those members of Congress who worked tirelessly to continue America’s investment in ethanol production,” said Chuck Woodside, RFA Chairman and CEO of KAAPA Ethanol in Minden, Nebraska.

Extending the tax credits for ethanol production may bolster corn prices.“If passed into law, the extension of the ethanol tax credit would be mildly positive for corn demand,” according to Marty Foreman, Doane Agricultural Services analyst. “It will ensure that corn for ethanol will meet and likely exceed the current 4.8 billion bushel forecast.”

Corn used for ethanol production remains in a solid upward trend. “Most projections for corn use for ethanol were based on a continuation of the tax credit in the first place,” says Foreman. “It’s more and more likely though, that corn for ethanol will exceed the current forecast because ethanol production since September 1, the beginning of the new corn marketing year, is up about 16 percent from a year ago.”

USDA is currently forecasting only a 5 percent increase in corn for ethanol for all of 2010/2011. “As a result, an increase in the corn for ethanol forecast of 50 million to 100 million bushels seems inevitable,” adds Foreman. “An extension of the tax credit reinforces that view.

Given the growing concern about deficit spending in last month's congressional elections, opposition to the extension of subsidies had increased.

Critics of the ethanol industry thought they had their best chance ever this year to kill the subsidy and tariff. But Grassley, the ranking Republican on the Senate Finance Committee, was well-positioned to defend the industry.